SCOREBOARD: Jobs blinkers

Wall Street was downbeat after jobless claims spiked, but tonight's payrolls data may provide consolation.

After learning that US GDP contracted in the fourth quarter, markets are patiently waiting to see what payrolls have in store tonight. On that note and following a decent ADP employment report in the previous session, we found out last night that jobless claims spiked 38,000 in the week to January 27 to 368,000.

I’ve mentioned before that seasonal adjustment issues make it difficult to get an accurate read on claims this time of year, and that’s no different this week. Suffice to say the number still isn’t too bad and with the four-week moving average little changed at 352,000, the indications are still quite positive for jobs growth – ie nothing to suggest the current rapid growth rate will moderate.

I suspect that’s part of the reason why markets didn’t blink when the data came out – that and the fact that other data showed personal income surged in December. It was up 2.6 per cent in the month which is the strongest gain in about eight years and substantially higher than the 0.8 per cent expectation. Now this is a great outcome and everything, but it was boosted by one-off social security and dividend payments (made to beat tax rate changes) and so isn’t some underlying trend. Still if you take those one-offs out, income growth was still healthy, rising by 0.4 per cent. Personal spending itself as up 0.2 per cent in December following a 0.4 per cent rise the month prior – again a good outcome.

So weighing it all up, markets did nothing generally, apart from some decent falls in the metals space – gold was off almost $20 to $1660, while silver fell 2.4 per cent and copper was down 0.4 per cent. Crude otherwise was off 0.5 per cent to $97.49. But for stocks, there wasn’t much and as I write, the major US indices are bouncing around 0 – S&P500 1502, Dow at 13891, and Nasdaq at 3145. Not much of a way to cap off what was the best January in 24 years (Dow) and 15 years for the S&P. This has got a lot of people excited because it’s apparently an omen for the rest of the year – 80 per cent of the time. The All Ords has had the second best January since 1994 apparently.

In price action elsewhere, we saw Australian push a little higher, up some 40 pips or so to 1.0440. The British pound then rose 60 pips, while euro did little and sits at 1.3575. Finally, the yen was up to 81.4 from 90.86. On the rates side there was very little action – the 10-year yield traded within a 2 bps range and sits at 1.98 per cent, unchanged from yesterday afternoon.

Bits and pieces otherwise. German inflation fell 0.7 per cent in January after a 0.9 per cent rise the month prior, to be 1.9 per cent higher over the year (down from 2 per cent). This is just below the ECB’s target and is still too high given weak growth outcomes. Still in Germany, unemployment fell 16,000 in in January and the unemployment rate decline to 6.8 per cent from 6.9 per cent which might sound high for Australia but is in fact very low for Deutschland. On the downside, German retail sales fell 1.7 per cent in December after a 0.6 per cent increase the month prior, to be 4.7 per cent lower annually. There were two other data points – one for the UK – house price rose 0.5 per cent according to Nationwide. And then finally for the US, the Chicago Purchasing Manager Index rose to 55.6 from 50.

Looking at the day ahead the SPI suggests the All Ords will be flat, otherwise there are a couple of data points for Australia: RP Data-Rismark’s house price series at 10 followed by producer prices at 1130 AEDT. China’s manufacturing PMI will probably take centre stage at 12 and then this afternoon the Reserve Bank updates its commodity price index.

Tonight it’s all about payrolls and the market looks for a 155,000 increase, with the unemployment rate forecast to remain steady at 7.8 per cent. The ISM index is also due, and the consensus expectation here is that it will remain steady at 50.5.

That’s the lot, have a great day….